Application based on rectified default is defective; cannot initiate CIRP on incorrect default date: NCLT Mumbai - 2025-09-10

NCLT Mumbai Dismisses Insolvency Plea Against Gensol EV, Cites Incorrect Default Date

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, has dismissed a petition filed by Vivriti Capital Limited to initiate insolvency proceedings against Gensol Electric Vehicles Private Limited, ruling that the application was based on a factually incorrect date of default which had already been rectified.

The bench, comprising Hon’ble Shri Nilesh Sharma (Member, Judicial) and Hon’ble Shri Sameer Kakar (Member, Technical) , concluded that an insolvency application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, is "inherently defective" if it fails to reflect the correct date and amount of default after subsequent adjustments.

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Background of the Case

Vivriti Capital Limited, the Financial Creditor, had extended a term loan of ₹5 crore to Gensol Electric Vehicles Private Limited, a manufacturer of EV solutions. The dispute arose when Gensol EV allegedly failed to pay an instalment due on March 5, 2025. Following this, Vivriti Capital issued a default notice and subsequently, on May 2, 2025, a loan recall notice, demanding the entire outstanding amount of ₹3.87 crore. The creditor then filed an application before the NCLT to initiate the Corporate Insolvency Resolution Process (CIRP) against Gensol EV, citing March 5, 2025, as the date of default.

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Arguments from Both Sides

Vivriti Capital (Financial Creditor): The creditor argued that Gensol EV's failure to pay the March 5 instalment constituted a clear event of default under their agreement. They contended that this breach, compounded by an adverse interim order from SEBI against Gensol EV's guarantors, justified the recall of the entire loan facility and the initiation of CIRP.

Gensol EV (Corporate Debtor): Gensol EV countered that the application was a misuse of the IBC process. They argued that the specific default of March 5, 2025, had been rectified on April 28, 2025, when Vivriti Capital itself adjusted the due amount from a cash collateral of ₹42.5 lakh provided by Gensol EV. This adjustment not only cleared the March due but also covered the April instalment, leaving a surplus with the creditor. Therefore, the debtor contended, no default existed on the date the loan was recalled, rendering the petition's foundational claim invalid. They further accused the creditor of forum shopping, as arbitration and other legal proceedings had also been initiated.

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Tribunal's Analysis and Key Findings

The NCLT meticulously analyzed the sequence of events and sided with the Corporate Debtor. The tribunal observed that the creditor's own statement of accounts confirmed the adjustment from the cash collateral on April 28, 2025.

The judgment noted a critical flaw in the creditor's petition:

"After the adjustment of cash collateral, the default as on 05.03.2025, which has been the basis of filing this Application, got rectified and ceased to exist..."

The tribunal found that the creditor's application was based on an outdated and incorrect premise. The core findings were:

• Rectified Default: The default cited on March 5, 2025, was cured on April 28, 2025, before the loan recall notice was issued.
• Incorrect Default Date: The application was defective as it claimed March 5, 2025, as the default date for the entire recalled amount of ₹3.87 crore, which only became due after the loan was recalled on May 2, 2025. The actual default date, if any, would be May 3, 2025.
• Duty to Update: The Financial Creditor was obligated to update the record of default but chose to proceed with the original, incorrect information.

Citing the NCLAT ruling in Deepak Mahadev Shirke v. Unity Small Finance Bank Ltd. , the tribunal emphasized the binding nature of the default date mentioned in a Section 7 application and stated it "cannot condone prosecuting an application without due regard to changed facts and compliance with procedural correctness."

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Final Decision

Concluding that the application was "inherently defective and incomplete" for failing to reflect the correct default date and amount, the NCLT dismissed the petition. The tribunal clarified that the dismissal does not prejudice Vivriti Capital's right to pursue its claim in any other appropriate legal forum. No costs were imposed on either party.